New California law to tighten capacity set for January 1, 2020 implementation
A controversial piece of legislation, California Assembly Bill 5 (AB 5), was signed into law by Governor Gavin Newsom on September 18, 2019. Most believe AB 5 will have far-reaching implications across the U.S. The law is expected to result in reduced capacity and increase pricing pressure as it will be very difficult for independent contractors (ICs) – who are a major source of capacity for over the road, port dray and intermodal transportation – to drive trucks in California.
What do you need to know about AB 5?
In practical terms, passage of AB 5 will likely result in a significant number of drivers – and trucks – exiting the California market. According to the California Trucking Association, there are approximately 70,000 independent contractors currently in the state. That number is likely to drop significantly as carriers – large and small – do not renew lease agreements with ICs residing in California.
Shippers should expect reduced capacity in 2020 and beyond. This is not something shippers can ignore as California is the largest economy in the United States and has the fifth largest GDP in the world. A significant amount of freight either originates in or is delivered to California.
How does AB 5 impact you?
Carriers are currently evaluating their alternatives for operating in California and each will take its own approach to compliance. However, none of the current alternatives are likely to preserve needed capacity.
Shippers operating in California are already functioning in a difficult, costlier environment due to a number of laws recently enacted in California, including controversial legislation which seeks to force carriers to treat and compensate ICs as they do their employees under threat of fines, penalties and litigation.
Other regulatory impacts will continue to reduce and tighten capacity, such as the implementation of the Drug and Alcohol Clearinghouse (effective January 2020), as well as other changes on the horizon. Click here for a complete review of the transportation regulatory landscape.
What is Schneider's plan to comply with AB 5 and provide capacity in California?
Schneider is working with its owner-operator ICs based in California to develop options for them to continue to provide capacity in California, including moving their residence outside of California and the option to provide services to Schneider as third-party carriers for our brokerage divisions by joining the approximately 28,000 qualified carrier relationships Schneider uses to move truckload, LTL and port dray freight.
What should shippers do to mitigate risk of disruption?
- AB 5 will impact all modes and forms of capacity; however, engaging a large network, multi-modal provider that offers both asset and non-asset capabilities will help safeguard disruptions.
- Contact your network of providers and inquire about their plan to comply with AB 5 and preserve California capacity. Consider what they are doing to prepare and how will they mitigate your risk.
- Contact California state representatives in the 2020 legislative cycle and share your concerns for the economy of California and shippers such as your firm.
- California will probably not be the only state to implement legislation that will reduce or eliminate independent contractor truck drivers; others may follow suit. You should continue to monitor legislation affecting ICs in all states to which you ship.
How can Schneider help?
Schneider has been serving the California market for decades and we expect to continue to offer reliable and compliant capacity across our broad portfolio of services within, into and out of California. We will monitor any further developments in California, as well as other states, and update you as appropriate.